Cisco's Failures in Corporate Alliances

Posted by: Michael Arndt on December 04, 2009

One of the truisms in innovation is that it’s OK to fail—most ideas never become a real-life product or service. Yet few executives are willing to fess up to their mess-ups. Cisco Systems’ Greg Fox is one of the few. Today, at the final day of the Open Innovation Summit, Fox, who is marketing director of strategic alliances, labeled a couple of Cisco’s partnerships with big-deal companies failures. And he told me later that a couple more seem likely to fall apart.

The summit, which I chaired in Orlando, had success stories in open innovation, too, from Clorox and Xerox. The audience also heard more how-to tips from executives and consultants. (You can get a sampling from this Twitter stream.) I’ll get back to them, after I pass along Fox’s soul-bearing.

Cisco’s two failed alliances were with Motorola and Ericsson. Fox said both imploded for the same reason: The partners had turned into competitors because of acquisitions. “The disadvantages outweighed the advantages,” he told me. Two others are heading that way, with Dell and Hewlett-Packard. The reason is the same, he said: Acquisitions, this time in servers, are turning allies into adversaries.

Sometimes the computer-network giant can continue to work with rivals, however. Fox noted that Cisco and Microsoft overlap in providing data centers. But they’ve been able to partition off that conflict to maintain their alliance.

Now for the success stories.

At Clorox, partnerships have become a necessity, said Ed Rinker, who manages the consumer-products company’s technology brokerage group. Clorox is simply too small in revenue and intellectual property to compete without outside help. So Rinker’s group surfs for technology that could extend product lines or, better yet, create products in new markets.

Since this outreach began 10 years ago, Clorox has introduced a breakout product every year. Its latest is the Green Works line of natural cleaners, which hit the market in 2008. Clorox licensed the Family Pure brand from a Japanese company and tapped European partners to help come up with cleaners that are made from plant-based ingredients and work as well as harsh chemicals like bleach. (Clorox changed the name to Green Works and co-branded it Clorox after tests with consumers.)

The eco-friendly line, which has been endorsed by the Sierra Club, threatened some Clorox executives, Rinker admitted. “This is a case where the antibodies of a company heavy in disinfectants could kill a great idea,” he said. But the new products seem more complementary that cannibalizing.

From 2004 through 2008, Clorox’s sales have grown by 4% to 9% a year. Rinker said a third to half of that rise is from innovation. Moreover, 80% of new products involved at least one partner.

Executives at Xerox also believe that it must work with external companies to get ahead these days, especially since revenue has plunged during the recession. For instance, the company is now asking outsiders to fund product research without subsidies from Xerox, said Stephen Hoover, VP of global software solutions. In exchange, Xerox promises a cut of future sales.

Hoover acknowledged that Xerox is giving up profits in the deals. But since it no longer has enough cash to support research on its own, it’s the best (and maybe only) way to get new products.

The company has partnerships with the likes of Procter & Gamble on printing consumer-products packaging. It also has turned increasingly to suppliers and customers for ideas and technology,

For example, a customer figured out that by tinkering with his Xerox machine, he could print on magnets. The company now sells magnetized paper that can be stuck on refrigerators to display personalized messages. Similarly, Hoover said, Xerox has signed up 200 partners to develop apps for its copiers and scanners, taking a page from Apple and its apps for iPhones.

These apps are also creating a problem, he said. (What silver cloud doesn’t have a gray lining?) Competitors are quickly copying the open-source apps and using them for their machines. That just means Xerox has to innovate faster, Hoover said, or be smart about what it patents.

Here are a few last tidbits from the Open Innovation Summit:

* Innovation consultant and author Robert Brands: The return on business model innovation is much bigger than product innovation. He also singled out Herb Kohler, chairman and CEO of Kohler, as a role model in inspiring innovation.

* Software inventor and innovator James Todhunter: “An idea is not innovation.” Innovation happens only when someone delivers a new product to the market.

* Weyerhaeuser’s VP of open innovation, John Tau: No company has the brainpower or budget to go it alone. “We need open innovation.”

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Reader Comments

Paul Jones

December 4, 2009 07:33 PM

The only thing you have to say about Cisco's role at the Open Innovation Summit was to talk about Corporate Alliance Failures? What about any of the hundreds of innovative things that Cisco has done for the industry? TelePresence might be a good one, or routing, or taking IP Telephony mainstream, or the work that WebEx has done with Web Conferencing... I could go on. Cisco has done much more for IT innovation, and the Strategic Alliance partnerships should not be the headline of their involvement at this type of summit.

Norma Watenpaugh

December 5, 2009 08:32 PM

Cisco leverages alliances for innovation. I will profi;e many examples of collaborative innovation w/alliances, including one from Cisco in an upcoming webinar: http://bit.ly/6m5eAc

Adrian. C Ott

December 7, 2009 01:20 PM

Mr. Fox's examples demonstrate that leading companies learn through their failures - not just successes. Cisco is reputed for their alliance innovation successes. They have even written a book through Harvard Business Press titled,"Strategic Alliances: Three Ways to Make Them Work."

You can also learn more about Cisco's leading-edge innovation processes here:

http://tinyurl.com/ykv6fyo

Adrian Ott
www.twitter.com/ExponentialEdge

joost allard

December 7, 2009 08:49 PM

What this story illustrates is that alliance and partner management are still a developing discipline. Companies engaging in a partnering business model today must realize that to a certain extent, they are pioneering. With pioneering comes 'failure'.
From my perspective as the CEO of a alliance management software product, real partnership failures are those where the contributing factors are (largely) controllable, but for some reason aren't managed. Cisco's 'failed' partnerships described here are not really failures. They are one of a series of 'exit' scenarios that companies must be prepared to face and execute.
All partnerships have a lifecycle, even though we all hope that they are forever. The trickiest partnerships are those where the outcomes are uncertain, such as the innovation partnerships discussed here. Experience teaches the alliance management practitioner that only adoption and consistent use of best practices contribute to predictability, consistency and higher potential outcomes.

Greg Fox

December 8, 2009 06:28 PM

I want to clarify a few points about strategic alliances from my presentation at the Open Innovation Summit.

First, companies can end an alliance relationship for many reasons -- market consolidations, acquisitions or when the relationship stops driving innovation or significant customer value. Just because a relationship ends, it doesn’t necessarily mean that the alliance should be labeled as a failure. Since 2000, Cisco has added new alliance partners to our portfolio and said good-bye to others. Over that period, the compound annual growth rate of bookings from our portfolio of strategic alliances is significant.

Second, many companies create alliance ecosystems to enter new markets. I explained at the summit how companies that go head-to-head in certain markets can simultaneously collaborate in new high-growth markets to successfully drive innovation together. Yet when the situation changes, an alliance may reach a tipping point where the companies may choose to end the alliance relationship or evolve into another type of partnership. In the cases of Cisco’s relationships with Motorola and Ericsson, the alliances reached their tipping points when an acquisition created too much competitive overlap. Although we exited the strategic alliances, we continue to work with both of these companies today in other areas of our business to drive technology integration and customer value. I wouldn’t characterize either of these as failed alliances. Rather, the relationships evolved to the next logical phase of their lifecycle as did the priorities of each of the companies involved.

In the final analysis, strategic alliances must evolve to continue to provide relevance and value to customers. Cisco is actively working with our key strategic alliance partners (including IBM, Microsoft and Fujitsu to name a few) to drive innovation. Although we sometimes compete with these companies, we continue to have strong alignment in driving innovation in select markets. And although our relationships with some companies may evolve over time to less of a strategic alliance and more of resell and technology partnership, Cisco will continue to ally wherever it makes sense for our customers.

Greg Fox
Director of Marketing
Strategic Alliances
Cisco

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